Roblox: A Longer Leash
From “The YouTube Of Gaming?” (April 2022):
“There’s another important question: what can Roblox become? As Reed Hastings once said, ‘What happens to people is that they associate you as you are, not what you can become if the technology matures.’ It’s easy to write off Roblox as a ‘less than’ gaming platform (the feeling that I had when playing the shooter game that resembled a low-quality version of ‘Call Of Duty’). But that misses the technical evolution of the Roblox platform over the past decade, as well as the incremental improvements that are likely in the years ahead… I think the arc of technological progress and time are on Roblox’s side… While I believe Roblox is well positioned to win, I also recognize that this story will play out over many years, even decades.”
One of the challenges I’ve faced in evaluating Roblox as a potential investment candidate has been in developing a sufficient level of confidence in my own answer to the question posed in the initiation: what is Roblox?
As I noted at that time, there were three key things that stood out to me: (1) Roblox is a low-cost and broadly accessible platform, which aligned nicely with the broader evolution of the gaming industry (cross-platform, freemium, etc.); (2); it is reliant upon the user / developer (UGC) flywheel, a model that’s incredibly difficult to replicate at scale; and (3) it is an immersive social network for the next generation with long-term ambitions beyond gaming.
As it relates to growing user interest in this model, the numbers speak for themselves: Roblox reached ~152 million daily active users (DAUs) in Q3 FY25, up ~70% YoY, with total engagement at ~39.6 billion hours, up ~91% YoY. Note that user time spent on Roblox in 2020 totaled ~30.6 billion hours; engagement over the past 90 days was about 30% larger than in all of 2020.
I honestly struggle to fathom how Roblox achieved these results. A platform with ~59 million DAUs at the end of 2022 - a tally that took ~15 years to reach, and with a significant tailwind during the pandemic in 2020 - added another ~63 million net DAUs over the past 12 months. (And as shown in the second chart, Roblox’s growth has been led by the older cohort; as discussed previously, a key question is Roblox’s ability to keep users from ageing out.)
What explains this significant reacceleration? In addition, what adjustments does it call for from investors in setting reasonable long-term expectations on Roblox’s trajectory - for the platform and for the business / the financials?